Financials and consumer-discretionary stocks were among the biggest decliners.

A gauge of consumer sentiment dropped to 66.5 in mid-July, the lowest level in 11 months, Reuters and the University of Michigan reported. This was a sharp reversal after index hit its highest level in 2 1/2 years last month.

Banks were among the day's biggest decliners after earnings from Bank of America and Citigroup beat estimates but disappointed nonetheless as revenues were weak.

This came after similar results from JPMorgan earlier this week that beat expectationsbut failed to impress analysts.

Financial-reform legislation won final approvalin the Senate late Thursday, capping a year of back-and-forth since President Obama proposed financial reform in June 2009.

Banks already are creatively turning financial-reform legislation to their advantage — and their customers may pay the price.

“There’s so much flexibility that these companies have in running their business that this bill is not going to run over them,” Dick Bove, an analyst at Rochdale Securities, said on CNBC Friday. “It’s going to run over the consumer, it’s going to run over the American economy, it’s not going to run over these banks.”

“If you’re a restaurant and you can’t charge for the soda, you’re going to charge more for the burger,” said Jamie Dimon, the chairman and chief executive of JPMorgan Chase, after his bank reported a $4.8 billion profit for the second quarter on Thursday. “Over time, it will all be repriced into the business.”

Goldman Sachs shares jumped more than 1 percent after the bank announced it would pay a record $550 million to settle SEC charges related to subprime mortgage collateralized debt obligations.

The settlement is being touted as a win for Goldman as well as the SEC as the company avoided the fraud allegations, admitting only that it omitted certain information that it should have disclosed.

Computer maker Dell said it's nearing a settlement with the SEC over its accounting and the actions of founder and CEO Michael Dell. Shares fell more than 2 percent.

GE reported its earnings rose more than 16 percent, snapping a nine-quarter losing streak. But revenue was light. GE is the parent company of CNBC.

BP shares retreated as the company stopped the massive oil leak in the Gulf of Mexico after 86 days and about 183 million gallons of oil were released into the Gulf, but investors remained worried that the 75-ton cap may not hold. BP is running some critical tests over the next two days to see if it will hold.

Apple shares were slightly higher after Apple CEO Steve Jobs held a press conference to address a glitch with the iPhone 4 that causes calls to be dropped. The stock got a quick pop after Jobs said the company will give customers a free caseto help correct the glitch.

"We're not feeling right now that we have a giant problem we need to fix," Jobs said.

Retail stocks suffered after that disappointing consumer-sentiment report. Home-repair retailers Home Depot and Lowe’s were both down more than 3 percent. Best Buy and Staples were down more than 4 percent.

Wal-Mart’s stock was hit by a Sanford & Bernstein analyst report cutting the retailer’s same-store sales estimate to a decline of 0.5 percent for the second quarter from an increase of 1.5 percent. The analyst also expects Wal-Mart’s profits to fall to 96 cents from 99 cents.